Tech industry wants employee based tax deductions to be extended to start-ups

Nasscom says the sectors exclusion goes against the agenda of promoting entrepreneurship in the country

The Union Budget 2014-15 extended an incentive scheme that provided tax incentives for small businesses for hiring new employees, a move that was initially cheered by the Indian technology industry. However, the euphoria soon fizzled out when the details later emerged, that the said scheme has not been extended to the technology industry and continues to be restricted to firms with manufacturing units. 

The industry feels that the technology sector’s exclusion from the scheme doesn’t go well with the government stated agenda of promoting and supporting innovation and entrepreneurship in the country.

The scheme termed as employment of new regular workmen scheme was earlier applicable to enterprises with a minimum 100 employees. However, the Budget reduced the eligibility criteria to 50 employees to bring under its ambit more firms in order to spur employment opportunities. 

Under the incentive, 30 per cent of additional wages paid to the new regular employees can be deducted from the profits eligible for tax for three assessment years. 

If the stated idea is to encourage employment generators and not just employment seekers than the employment linked incentives should apply to the technology industry as well, said R Chandrashekhar, president of IT Industry body NASSCOM. “Restricting it to just the manufacturing sector runs counter to the very objective to promoting the start-up eco-system in the country,” he added. 

The country has over 3,000 start-ups in the country and 800 more are getting added each year. An employment linked incentive could possibly benefit such companies to a large extent. “It is the smaller companies which need and gain the most out of such incentives,” said Chandrashekhar who was previously the telecom and IT secretary to the government of India. 

Nasscom is planning to send in a representation to the government to include the sector in the ambit of this scheme. It is also planning to request the government to further reduce the eligibility criteria for the deduction from minimum 50 employees. A huge number of new age technology companies employ a very small number of people with the headcount being as low as 5 people in some cases.